Banking crisis month: SVB, Signature, Credit Suisse

March 2023 saw the most acute banking stress since 2008. Silicon Valley Bank collapsed March 10 after a $42B deposit run on March 9, followed by Signature Bank on March 12 under systemic risk exemption. Credit Suisse received a $54B Swiss National Bank credit line March 15 before being forced into a weekend UBS merger March 19. First Republic Bank received $30B in consortium deposits mid-month but continued declining through April.

The Fed response was rapid and expansive. The Bank Term Funding Program (BTFP) launched March 12 allowed banks to borrow against Treasury and MBS collateral at par value rather than mark-to-market, eliminating the 2022 duration losses as a solvency issue. The Fed balance sheet expanded $400B in two weeks, partially reversing a year of QT. Despite the crisis, the Fed still raised 25 bps at the March 22 meeting while signaling the cycle was nearing its end.

Markets were volatile but resilient. The S&P 500 gained 3.5% on the month as tech stocks surged 9% on lower rate expectations. Regional banks (KRE) fell 27% as sector-specific stress persisted. The 2Y Treasury yield fell 80 bps, one of the largest monthly declines on record, as terminal rate expectations collapsed. Gold gained 7% as real rates fell and financial stress premiums rose. The month established that Fed credibility on rates was constrained by financial stability considerations, a factor that would shape policy for the remainder of 2023-2024.